Economist Highlights Asymmetric Growth and Persistent Inflation Challenges for U.S. and South Dakota Economies
- Steve Jurrens
- Oct 19
- 3 min read
Northeast Radio SD News - Watertown, SD - Jared McEntaffer, Chief Economist and CEO at the Dakota Institute for Business and Economic Analysis, addressed the Watertown Development Company (WDC) annual meeting to provide an analysis of the current business cycle, noting uneven growth across sectors and geographies, and persistent inflationary pressure.
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The Asymmetric Economic Picture
McEntaffer began by emphasizing that the economic narrative must start from the data, not a pre-conceived story. He characterized the current environment as one of asymmetric growth, observing mixed results across the country:
• Geographic Asymmetry: Citing a recent analysis, he noted that 22 states, including South Dakota, were in recession or close to it over the past 12 to 18 months, indicating "choppy level economic performance at the state level."
• Sectoral Asymmetry: McEntaffer highlighted that the only significant source of growth in the U.S. economy during the first half of 2025 was the boom in AI and data centers. When stripping out fixed investment in technology, real GDP growth for the first half of the year was close to zero.
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Trade, Tariffs, and GDP Volatility
The economist provided a detailed explanation of recent volatility in GDP numbers, linking it to trade activity influenced by expected tariffs:
• Q1 2025 Negative GDP: The negative GDP growth in the first quarter of 2025 was primarily attributed to a massive spike in imports. Firms "front-loaded" their inventories, bringing in as much raw material and retail goods as possible in anticipation of new tariffs coming out of Washington. In GDP accounting, increased imports are a negative factor.
• Q2 2025 Strong GDP: The strong rebound in the second quarter was a seesaw effect caused by a "complete reduction in imports" relative to the prior quarter, as the inventory build was complete.
• Tariffs as Taxes: He presented data on monthly customs duties, a direct reflection of tariffs, to illustrate that tariffs are taxes paid by importers. This creates margin compression for businesses, putting pressure on them to identify new supply chains or raise prices.
• Export Headwinds: McEntaffer also noted a decline in U.S. export growth over the past six months, attributing it to possible trade retaliation and increasing global competition.
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Inflation Remains Stubbornly High
McEntaffer dedicated a significant portion of his presentation to inflation, noting that despite elevated interest rates from the Federal Reserve (Fed), prices continue to rise beyond the central bank's target:
• Above Target: The pre-COVID trend inflation rate (measured by CPI, PCE, and Core PCE) was about 1.7% annually. Today, that trend sits at 2.6%, remaining 50% higher than the rate before the pandemic.
• Lack of Progress: Short-term trend analysis (three-month rolling average) shows that inflation is "not working" for the Fed and appears to be on an uptick again, with spikes visible in late 2024 and late 2025.
• Producer Price Pressure: Analyzing the Producer Price Index (PPI) revealed significant business-level price inflation in manufacturing, information, and services. Furthermore, a negative PPI in the retail sector indicated margin compression, creating future pressure for retailers to raise consumer prices to absorb cost increases like tariffs.
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Labor Market Trends
McEntaffer briefly touched on the labor market, pointing to a solid downward trend in the monthly number of new jobs created. While some slowdown is expected coming out of the post-COVID boom, the overall pace of job growth is decelerating.
